Update just updates the package list from the resporitories, so that Apt will download the latest package if you tell it to, Upgrade actually downloads and installs the latest packages on the list, if they are newer than the current version. Type apt-get --help for info on Apt commands

As for the Thunderbird thing, I don't know if there's a Debian build later than 1.0 yet (but I might be wrong, anyone?)
EDIT: allow me to correct myself. If you want to update Thunderbird you'll either have to get the Mozilla.org release or add these lines to sources.list:
deb http://people.debian.org/~asac/testing ./
deb-src http://people.debian.org/~asac/testing ./
More info on Debian Thunderbird Here

Mark